Now For The Rest Of The Story On Massachusetts Cost Control

A bureaucracy-centric governing philosophy is spreading in health care, and with it comes heavy reliance on “experts” to determine how to curb costs outside the normal legislative and democratic process. This was embodied at the national level by the Affordable Care Act (ACA), and most recently at the state level in a new Massachusetts growth-capping law. (Supporters refer to the law as cost control and payment reform or Health Reform 2.0; the legal name is Chapter 224 of the Acts of 2012).

The new Massachusetts law was discussed by Mechanic, Altman and McDonough in a past Health Affairs issue, and on the blog by Turnbull and Lee. Yet, the unintended consequences of using this method to reform health care have not been fully explored.

The law also mandates the use of electronic medical records (EMR), and bulks up state government oversight and involvement in the health care marketplace with more than 20 commissions, councils, committees, advisory boards, and task forces comprised of at least 278 “expert” appointees. (Note: Some groups are given regulatory authority.) The law reconfigures two existing agencies into the Health Policy Commission (HPC) and the Center for Healthcare Information and Analysis (CHIA). (See Table 1, click to enlarge.)

State government has been given a steroid shot in market oversight and permission to write regulations freely. For example, the HPC is given only broad outlines for its responsibilities but is instructed to promulgate hundreds, if not thousands, of pages of new regulations and rules, and “undertake any other activities necessary” pursuant to their powers and duties. The only clear thing about how expansive their authority will be is how vaguely it is defined.

In addition, state government will now track the annual growth rate at most health care entities, collect reams of new data, add additional levels of registration for most health care professionals and hospitals, authorize any change to the health infrastructure, and approve or disapprove any new and innovative medical technology. A Department of Public Health-led “state health plan” will count every medical resource in the state and “identify needs of the commonwealth in health care services, providers, programs and facilities; the resources available to meet those needs; and the priorities for addressing those needs.” The state health plan will be linked to a strict certificate of need process that requires five different state agencies to grant approval and will determine how to “rationally distribute health care resources across geographic regions.” (italics added)

The law increases Medicaid payments by $20 million annually and also hikes payments to critical access reimbursement hospitals, non-acute chronic disease hospitals, rural sole community providers, and expands or creates numerous workforce development and loan forgiveness programs. The expense of these new initiatives is often unclear, since no official estimate has been conducted. However, we do know that hospitals and insurers are assessed $225 million in the first year to pay for some of these new state programs, and that money has already been earmarked for public health spending ($60m), distressed hospitals ($135m), and health IT ($30m). Additional revenue sources remain elusive.

In a major change, state health care programs are authorized to directly contract with an ACO, cutting out insurance companies and setting up a default single-payer system for public programs. Businesses of any size are given the option of an up-to-$10,000 tax credit to start wellness programs. Insurers, hospitals, and state agencies are required to establish websites and toll-free phone lines to provide data on cost. And finally, state agencies are given the authority to assess millions of dollars in new fees and penalties to both fund their operations, and to ensure compliance with any new regulations they promulgate.

But Will The Solutions Save Money?

Many of the law’s supporters hold a deep technocratic belief summarized by a key legislator who told me no one should worry since professionals will “figure it all out for us” once the bill becomes law. But can a commission or council determine the right balance between: primary care physicians and specialists, academic medical centers and rural clinics, the needs of small versus large employers offering employee insurance, private non-profit insurance companies and publicly funded Medicaid?

The legislative process would also seem to reinforce a technocratic belief, as the 349-page law passed 14 hours after the final language was released, and most lawmakers had little idea what they were voting on. A full summary was never compiled before the vote, and no cost estimate was ever conducted. As a result, supporters are able to claim the bill will save $200 billion without providing any justification for such a claim. They point to the following list of policy solutions as possible silver-bullets to contain costs. But do the solutions match the problems in Massachusetts?

Linking Healthcare Growth and State Economic Growth

Chapter 224 hopes that by linking these two growth rates, the health care rate will slow when compared to past experience. But why link these two rates? Is there a tight relationship that explains this linkage? No one seems to know, and history offers a few warnings.

When examining historical data from Massachusetts, it becomes clear there is little correlation between the two growth rates. In fact, since 1998 the two growth rates have moved in opposite directions almost half the time. Healthcare growth often lags a few years before “catching up” with the state’s economic trend, and the magnitude of movement in either direction rarely tracks together. (See Chart 1, click to enlarge.)

As a result, it is an open question what health care entities will do in the short run (18 months as allowed in the law) to match the state economic growth if they are exceeding it. Since hospital budgets carry significant staff costs; won’t the biggest target be layoffs? Won’t this only deepen an economic downturn?

Work by Attorney General Martha Coakley has made it undeniably clear that dominant provider market share is the strongest driver of health care costs in the Commonwealth. Since the growth rate has been capped in Chapter 224 without regard to current size or market share, or even in relation to a system’s reimbursement rates compared to the median, marketplace dominance has been cemented for at least the next decade. Every health care entity may grow at the same rate going forward, but not all are beginning from the same starting point.

More concerning is the preference Chapter 224 gives to ACOs, with the explicit goal of further market consolidation. These factors will accelerate the trend of consolidation as Partners HealthCare, Steward Health Care System, and Vanguard Health Systems have already been buying or merging with smaller operations. This gives even more control to a small number of providers and destroys any hope of meaningful competition. Many hospital stakeholders privately express a belief that in five years, there will only be five or six large health systems in the entire state.

Yet for the sake of argument, let’s assume the Attorney General is wrong about the status quo in Massachusetts. Will the bigger is better philosophy in the form of ACOs save money? Unfortunately, there is no consistent evidence that ACOs save money for the general population. In the 2005-2010 Medicare Physicians’ Group Practice (PGP) ACO pilot, only two of ten ACOs achieved first-year savings of 2 percent, and only half managed to achieved savings after three years.

Scholars on the right and left agree that the pilot produced disappointing results, and a recent study put an even sharper point on the PGP results. A deeper dive into the data found that the bulk of the limited savings came from the dual-eligible population. Yet, Chapter 224 aggressively pushes all public programs and commercial plans for the individual and small group market into ACOs. While ACOs are not inherently bad, they do share some of the same perverse incentives that resulted in HMO backlash. Consequently, relying on them for savings when their track record is mixed should raise some serious questions.

Strict Preference for Alternative Payment Contracts

The Attorney General has also documented that alternative payment contracts in Massachusetts often cost more than fee-for-service, with no indication that they provide higher-quality care. Yet as with ACOs, Chapter 224 gives preferential treatment to such contacts that incorporate capitated and bundled payments. Again, these contracts are not inherently bad, but prior experience in Massachusetts should raise questions about promised savings.

Mandating Health IT and Participation in a Health Information Exchange

A recent Wall Street Journalop-ed called into question the cost savings estimates of the EHR industry by highlighting work done at McMaster University and their review of 36,000 studies on EHR. The authors found that “the most rigorous studies to date contradict the widely broadcast claims that the national investment in health IT—some $1 trillion…will pay off in reducing medical costs.” Health IT is not inherently bad, but the research, once again, casts doubt on the promised savings.

Hundreds of Millions of New Spending, Assessments, Fees, and Penalties

No cost estimate has ever been conducted for the law, and authors have admitted having little idea what the cost of compliance will be for the government, hospitals, doctors, and insurers. In other words, how much will patients or taxpayers be asked to pay for this new spending?

What About The Consumer?

Unfortunately, Chapter 224 missteps on one of the most promising solutions to cost control — an engaged consumer. Real health care reform results in patients rewarding low-cost, high-quality providers by giving those providers their business. While Chapter 224 does make progress on consumer education by continuing to collect cost and quality data, the incentives are still not aligned properly for patients and may increase costs as a result.

For example, even with hospitals and insurers mandated to provide consumers the contracted amount for a procedure within two working days (eventually on a real-time basis), many in Massachusetts pay the same co-pay or co-insurance whether they go to hospital A or B. In 2011, 57 percent of private sector employers in Massachusetts were enrolled in a plan with no deductible, compared to 26.2 percent nationally.

Consequently, with a low penetration of consumer tools like health savings accounts (roughly 3 percent), patients are likely to pick a more expensive provider, falsely equating higher price with higher quality or simply because of brand name strength. The new law may have unintentionally exacerbated this problem. Our own Governor made this choice when he recently had hip surgery at an expensive academic medical center in Boston when at least 4 other high-quality lower-cost community hospitals are closer to his house.

Conclusion

Healthcare accounts for 18 percent of the Commonwealth’s economy. The heart of the critique of the Massachusetts law is not new: Does one believe technocrats have the sophistication, capacity and judgment to distribute health care resources? Or with greater consumer engagement, can an empowered patient apply downward pressure on health care prices?

The shortsighted approach of Chapter 224 is its heavy focus on the supply-side of health care (delivery and payment changes) without much thought to the demand-side (consumer incentives). The law promotes the establishment of ACOs and alternative payment contracts as an end goal, not a means to an end to reward value-adding care. Now that the law’s major regulatory body, Health Policy Commission, is up and running, one can hope that these experts will recognize this disconnect and work with our elected officials to engage patients in a transformative manner, instead of attempting to be the transformation themselves.

3 Responses to “Now For The Rest Of The Story On Massachusetts Cost Control”

I think Ms. Gorman is correct to point out the examples of areas of medical service in which markets have played a valuable role in both improving the quality of care, but also lowering prices.

It is unrealistic to have “an engaged consumer” when there has been a bad car accident, but it is very realistic to ask tens of millions of Americans to be value seekers for their routine care. This slight change would help “providers and health plans get the message,” and aid us all in moving in the right direction to evolve our healthcare system to a more sustainable one. This change would also have a spillover effect to other patients that may not be engaged, but would now be courted on value for the first time in their lives.

Finally, Jdent you comments seem to imply that low-income and seniors are not capable of making informed decisions on healthcare. While we all know medical services can be complicated, I have full confidence that many of these folks know how to stretch a dollar, as many are living on fixed incomes or trying to patch together a living on minimum wage. We should at least give them the opportunity and incentive to seek out a better deal. If I am right, then both beneficiaries and taxpayers will win.

Results from 2002 MEPS data suggest that health care expenditures are not as concentrated as the previous commentator says. They suggest that 5% of the population accounts for 49% of total health care expenditures in a given year. People 65 and older are about 13% of the population but account for 36% of expenditures. There is a lot of churn–only 25% of people in the top 1% of expenditures maintain their ranking in the next year. The numbers for other groups are 34% of the top 5%, 41% of the top 10 percent, and 74% of the top 50 percent.

Engaged consumers can do a lot, even if they are seriously ill. For example, they can choose where they receive care. In one case I know of an elderly woman broke her hip while visiting her daughter. She wanted to have it fixed at her daughter’s as that would make recovery easier and mean that she wouldn’t need home care. Her HMO made her travel home. It probably increased total health expenditures because it wouldn’t let her choose. Another example comes from state experiments with Medicaid clients. Disabled clients have shown that they can cut voluntarily their expenditures by as much as 20 percent if they are given the freedom and the incentive to do so.

But Mr. Archambault’s point is larger. Many of the most important cost saving innovations in US medical care, innovations such as assisted living, outpatient surgery, and advanced diagnostic imaging, come from suppliers who know what the problems are and have the freedom to innovate. As Mr. Archambault points out, the Massachusetts law comprehensively regulates the supply side and will likely stop this kind of innovation dead in its tracks. Bureaucracies are not conducive to change. They also have a poor record of funding demonstration projects that actually produce results that people are willing to pay for.

Governments know only two ways to reduce health care expenditures—cutting reimbursements and limiting the care that people can receive. Their control of health systems generally makes patients worse off. Market driven health systems, systems in which patients and suppliers communicate via the price system, can both reduce costs and make everyone better off, as the cash markets in vision correction, plastic surgery, dentistry, and orthopedic procedures show.

Josh you don’t get it. When 5% of the Medicare population spend 75% of the costs, and 13% of the Medicaid population spend 70% of that costs, and less than 20% of the commercial population spend 80% of that costs….there is no such solution as “engaged consumers”. The out of balance in health care spending is a result of community rating, an insurance function that none of us want to give up. So stop beating the dead horse, either the providers and health plans will get the message and start encouraging efficeincies in the delivery of medical care (there is no “market” here), or the State will re-institute rate setting….which by the way when last done kept the inflation of prices in check.

February 27th, 2013 at 12:07 pm

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